Coeur’s Q3 earnings don’t disappoint

After dishing out US$57.3 million in capital spending during the third quarter, Coeur d’Alene Mines (CDM-T, CDE-N) is still sitting on a mountain of cash.

“Our liquidity position remains very strong, with US$209 million in cash, equivalents and short-term investments,” Dennis Wheeler, Coeur’s chairman, president and CEO, said in a statement.

Together with cash flow from its operations, Coeur believes its balance sheet is robust enough to complete the construction of its San Bartolome, Palmarejo and Kensington projects without the need for additional outside capital.

Most of Coeur’s capital spending in the third quarter was channelled into San Bartolome — the largest new pure silver mine to be built in the Americas in decades. The mine remains on schedule to start production in February.

San Bartolome, in Bolivia, is expected to produce between 6 and 9 milion oz. silver a year, which will increase Coeur’s total silver production by about 75% over current levels.

Total proven and probable reserves of more that 150 million oz. silver are contained in surface gravel deposits, which lend themselves to simple, low-tech surface-mining techniques.

But Coeur also has high hopes for the Palmarejo silver-gold project in Mexico’s Chihuahua state. The company expects its proposed takeover of Palmarejo Silver and Gold to be complete by mid-December. According to Coeur, the Palmarejo project “is the largest and highest-quality silver-gold project currently under development in the world today.”

Coeur said it expects to produce nearly 29 million oz. silver in 2009, once Palmarejo is in production — a 142% increase over current levels. The company says it will churn those ounces out “at industry-low cash costs” of less than US$1.75 per oz., which would be 55% lower than current levels.

Touching on other financial highlights in the third quarter, Wheeler noted that in Australia, the company’s Broken Hill and Endeavor mines continue to deliver improved results.

With consistently low cash costs, Coeur is nearing complete payback of its Australian investments made just two years ago, Wheeler noted.

The company expects silver production from Endeavor to continue for at least the next 15 years and from Broken Hill, for seven years, he said.

Endeavor is a lead-zinc-silver mine located in New South Wales; it began production for the first time in 1983. Coeur acquired the mine for US$38.5 million in May 2005. Since then, Coeur has recouped nearly half its initial investment from about 1.1 million payable oz. silver produced to date.

In the third quarter, silver production at Endeavor climbed 26% year-on-year, with cash costs consistent at US$2.65 per oz. silver. In the first nine months of the year, silver production was up 51% over the same period last year at nearly 457,000 oz.

At the Broken Hill lead-zinc-silver mine, also located in New South Wales, silver production reached 427,000 oz. in the third quarter compared with 587,000 oz. in the same period a year ago.

Cash costs of US$3.10 per oz. silver remained consistent with the same period in 2006. The mine did not fare as well in the third quarter as Endeavor, however, due to a fatality in January that led to a 6-week closure of the mine.

Nevertheless, since acquiring Broken Hill in September 2005, Coeur has recouped over 75% of its initial investment from about 3.7 million payable oz. silver produced to date.

Since its beginnings in 1885, Broken Hill has been one of the most prolific silver-producing regions in the world, with production of about 500 million oz. silver.

Overall, Coeur reported quarterly revenue of US$52.9 million, up from US$50.6 million during last year’s third quarter.

Quarterly net income totalled US$3.6 million, or US1 per diluted share, compared with net income of US$18.4 million, or US6 per diluted share, for the third quarter of 2006. Included in those results was the expense of US$2.5 million associated with the termination of mining at the company’s Rochester operation during the quarter.

For the first nine months of the year, revenue reached US$155.4 million, up from US$149.5 million in the same period last year.

Net income during the first nine months was US$29.6 million, or US10 per diluted share, down from US$65.3 million, or US23 per share, for the same period in 2006. (Results for the first nine months of 2006, however, included a gain of US$11.1 million from the sale of Coeur Silver Valley, as well as US$2 million of income from CSV operations.)

Production levels, however, were not as impressive in the latest quarter as they were a year ago. Coeur produced 2.7 million oz. silver and 20,500 oz. gold during the third quarter, compared with 3.3 million oz. silver and 30,000 oz. gold during the same quarter in 2006.

Year-to-date production also lagged the same period in 2006. In the first nine months of 2007, Coeur produced 8.3 million oz. silver and 70,500 oz. gold, compared with 9.4 million oz. silver and 84,500 oz. gold during the first nine months of 2006.